Performance update on CRISIL Ratings rated securitization transactions
CRISIL Ratings has analyzed the collection performance of asset-backed securities (ABS) and mortgage backed securities (MBS) under its surveillance till March 2021 payouts.
The transactions are backed by receivables from commercial vehicle loans (CV), car loans, tractor loans, construction equipment (CE) loans, IT & health-care equipment loans, gold loans (GL), cash / personal loans, real estate developer (RE) loans, consumer durable loans (CD), education loans (EL), loans extended to small & medium enterprises (SME), two-wheeler loans (TW), auto lease loans, microfinance (MFI) loans, home loans (HL) and loans against property (LAP).
Collection ratios of the pools rebounded quickly after declining because of COVID-induced disruption
The restrictions imposed on business activities due to the COVID-pandemic at the beginning of fiscal 2021 left an imprint on collections from the securitized pools and payouts to the investors. Collections had fallen to near zero in many pools for the May 2020 payout. However, as the restrictions were withdrawn, collection efficiencies rebounded to pre-COVID levels within two quarters. For pools backed by MFI and CV pools, median collection efficiency crossed 65% and 55%, respectively, for the August 2020 payout. For SME, TW, and mortgage pools, the median ratios crossed 60%, 70% and 74%, respectively.
Towards the end of the fiscal 2021, the collections were almost back to pre-COVID levels witnessed a year ago. For the ABS transactions, the average cumulative collection ratios (CCR) were 95.6% and 95.8% for April 2020 and March 2021 payouts, while the CCRs for MBS pools were 99.1% and 98.9% over the same periods.
Some investors chose to modify the transaction structures during the moratorium period
The moratorium arrangement extended by the Reserve Bank of India in March 2020, as part of its ‘COVID-19 Regulatory Package’ provided liquidity cushion to retail borrowers given the stress in their cash flows during the first few months of fiscal 2021. Given the pass-through structure of the transactions, most investors consented to extend the moratorium on their payouts too. Consequently, the available credit enhancement was not utilized during the moratorium period in most CRISIL Ratings-rated securitization transactions.
Some investors went further ahead and modified the terms of their transaction structure In line with the RBI announcement, from previous promised payments for interest and principal, to promised interest payment with principal assured only at maturity. Out of the 185 transactions which had payouts during the quarter ended March 2021, 9 ABS pools, of which 7 were backed by CV loans and 2 had TW loans underlying, witnessed such a change in transaction structure during fiscal 2021.
CRISIL Ratings-rated portfolio continues to exhibit resilience, despite volatility in collection efficiencies
CRISIL Ratings had ratings under 185 ABS & MBS transactions during the quarter ended March 2021. In fiscal 2021, ratings under only 3 ABS transactions (1 CV and 2 MFI) were downgraded and placed on rating watch. In these transactions, vulnerabilities were identified, largely, as a result of factors such as the promised payout structure, moratorium not being obtained from investors and low amortization levels. The outstanding ratings for 3 other transactions had also been downgraded due to credit quality issues faced by the originating NBFC.
MBS transactions were more resilient and continued to exhibit stable collection ratios. While past performance is a crucial input, CRISIL Ratings will continue to closely monitor the performance of the contracts in all its rated ABS & MBS transactions.
Collection ratios for some asset classes had recovered to pre-COVID levels over the November 2020 to March 2021 period. However, the surge in infections since then had dimmed prospects of return to business-as-usual. The pace of vaccinations, the cyclical rise and fall of cases, and return of the economy to normal on a sustainable basis will determine medium-term outlook for the industry. For the pools under review, sufficiency of internal and external credit enhancement as per the transaction structures will be an additional input for rating actions.
All CRISIL Ratings-rated securitized instruments are under continuous surveillance until investor payouts are made in full. CRISIL Ratings disseminates the ratings/credit opinions through its quarterly publications and press releases in a timely manner. The ratings/credit opinions represent CRISIL Ratings’ view on the transactions as on June 30, 2021.
